6. Life insurance is important if you are an entrepreneur.
A small business owner has many reasons for life insurance. If you die unexpectedly, what happens to your business? Your employees?
You can buy life insurance on yourself and designate a co-owner or the business itself as the beneficiary. The death benefit can help keep your business going, even if you die suddenly.
If you need financing for your business, it is common to take out a small business loan. But lenders want collateral. They want to make sure they get paid, even if something happens to you.
Lenders are often happy to accept life insurance as collateral. For example, if you are applying for a $250,000 SBA loan with a 30-year repayment schedule, you can purchase a $250,000 life insurance policy with a 30-year term and assign it to the lender.
» Read more: Small Business Administration (SBA) loans and life insurance
7. Buying a policy now may be wise if family members have significant health history.
Some health conditions are hereditary. If you have an immediate family member who has been diagnosed with or died of a serious condition, such as cancer or heart disease, it may be cheaper for you in the long run to buy life insurance now versus waiting.
Once a person̵7;s health begins to decline, life insurance can become very expensive to purchase. In some cases, you become uninsured.
If you are concerned that you may not be able to qualify for life insurance in the future, look into it now.
Takeaway: If you have people who depend on you, you definitely need life insurance. If you don’t, there are only a few cases where life insurance makes sense.
Things to consider when buying life insurance at a young age
Your insurance limit
Depending on how young you are and where you are in life, you may not be able to buy a large life insurance policy right now. This is because the insurer has to confirm that you can actually pay for the cover you apply for before they are willing to give it to you.
The maximum amount of life insurance you can have active on yourself at any given time is called your insurance limit and is determined based on your age and annual income.
This limit also means that you may not be able to buy a large policy unless you work full-time. For example, if you’re a student working part-time, you won’t be able to get approved for a $1,000,000 life insurance policy unless you have a strong financial case to present to the underwriter, such as a positive net worth or assets you need to protect .
Smaller policies, such as those in the $100,000 to $250,000 range, are much easier to purchase. Once you’re in the workforce and making money consistently, you can quickly start buying larger policies if and when you need them.
Also, when you apply for life insurance, you must choose a beneficiary, the person or people who will receive the money if you pass away and your policy pays out.
As part of the purchase process, you will likely need to motivate your chosen beneficiary by explaining how they would be affected by your death. This is known as insurable interest.
If you name your parents as beneficiaries, you probably won’t encounter any problems when buying a small policy. However, if you name a sibling or friend as a beneficiary of your policy, you will probably need to provide a reason why they would be financially affected by your death.
For a single person, naming a parent as your beneficiary is often the best move, as they will likely be the ones paying for your end-of-life expenses, such as your funeral.
Even if you don’t need life insurance now, you probably will in the future. Getting life insurance quotes online is easy. Run some numbers to get an idea of how much it costs. It may be worth it to lock in a low rate now and be happy you already have coverage when you need it.
Not sure how much life insurance you need? Check out our free and easy-to-use life insurance needs calculator.